I’m thinking the cat is out of the bag. There are some arguments that the Fed could end up lowering interest rates this year, but from Friday to yesterday, the bonds fell almost 4 points from Friday’s high. In other words, the bonds are starting to tell a different story, as the 10-year yield continues to rise.
Further, the dollar has firmed up and has climbed 3% in 3 days — a notable move in currencies (chart below).
While Powell indicated that the Fed will still raise rates going forward, the market “got into a game of chicken,” daring the Fed to continue with its rate hikes going forward. Investors were confident until the NFP report came in ~3 times higher than economists were expecting.
On Monday, that had Atlanta Federal Reserve Bank President Raphael Bostic talking about even higher interest rates now and potentially going back to 50 basis point increases. If that happens, this market is in trouble.
That said, take it with a grain of salt, as Bostic is a non-voting Fed member.
According to the J.P. Morgan global strategist Marko Kolanovic, “the breadth of global growth has moved up, [however] the 4Q earnings season is sending a more sobering message.” He added:
“We expect an air pocket during Q2 and Q3, with weaker activity and earnings, and consequently believe that Q1 will be an inflection point in the market…We advise using the current strength in order to reduce exposure.”
Our Lean: Yesterday we were looking to sell the rallies and that was exactly what the day called for, even though the S&P settled into a range for most of the session. It was a choppy day, but it favored the downside. Today’s a little different.
Today’s session will likely hinge on what Jerome Powell says, as he speaks at 12:40 (here is the link to it). We are also caught in a tough spot, as the S&P rams into prior resistance, but has a much stronger trend behind it.
On the downside, 4100 remains key and is where active support comes into play. I would look to buy an early dip down in this area and sell at least half of it on a 20 to 25-point rally. On the upside, I’m selling the rallies if they can’t hold above 4135-4140.
Note: Don’t forget that the State of the Union address is tonight at 9 pm ET, which could have futures markets active.
MiM and Daily Recap
The ES sold off down to 4106.25 on Globex and opened Monday’s regular session at 4121.25. After the open, the all-day chop began with a pullback down to the 4116.75 level at 9:44 and then a push up to a 4130.25 double top, then a selloff down to new lows at 4104 at 10:33. After the low, the ES chopped its way up to the 4136.50 level at 11:33 and then dropped back down to the 4116 area at 12:20 and slowly rallied up to the 4128 level at 12:50. It pulled back down to 4114.75 at 1:55, rallied back up to 4134 at 2:22 and then fell back down to 4110.75 at 3:30.
After the low, the ES rallied up to 4124 at 3:40, traded 4118.50 as the 3:50 cash imbalance showed $1 billion to sell and traded 4123.50 at the 4:00 cash close. After 4:00, it traded between 4124.25 and 4121.50 and traded 4123.25 at the 5:00 settlement, down 24.25 points or 0.58%.
In the end, it was a “sell the rallies” day, but it was terribly choppy and slow. In terms of the ES’s overall tone, it was slow, choppy and weak but the ES held right where it should have. In terms of the ES’s overall trade, volume was 1.51 contracts, low vs. Thursday’s and Friday’s action.
Bonds fell 1.02 points to 129.00
Gold rallied $2.90 to $1879.50
/YM fell 28 points to 33,934
Euro fell 0.89 to 1.0748
DAX dropped 114 points to 14,395
NYSE Breadth: 33% Upside Volume
Advance/Decline: 24% Advance
It’s okay not to be optimistic, but right now, it’s hard to get overwhelmingly bearish. We’ve had nice accumulation days on the upside and low distribution days on the declines. Breadth has been strong on the up-days and mild on the down days.
I don’t have a very strong bias one way or another right now, and personally, I would love a retest of the low to get some more long-term allocations in place — (remember these?)
If the Fed does become more hawkish, equities will take it on the chin. But so far, we don’t know that that will be the case. And for now, the recent action has been bullish.
S&P 500 — ES
The pullback from ~4175 resistance has been incredibly orderly. The ES pushed up to this key zone and is now giving us a mild dip back down to active support.
The Trade: Look for a break of yesterday’s low (4104) and ideally, a tag of the 10-day moving average. If it holds and the ES reclaims 4104, it could be a high-quality long trade.
A break of the 10-day and a move lower could usher in tests of 4084, then 4050.
On the upside, keep an eye on 4135, then 4150 to 4155.
The SPY gave us a “double doji” setup on the 4-hour chart. In essence, we’re looking for a range break below $408.72 or above $411.05.
Of course, it also came after a close near $410, a vital level for the ETF.
A rotation higher puts $414 in play, then a shot at last week’s high. A rotation lower puts $407 in play. Which would look like this:
$407 is the 61.8% of last week’s range and the 10-day ema.
It would be beautiful for ARKK to dip down to the 10-day/200-day combo in the $40.00’s.
I know ARKK gets a lot of hate, but if we remove the ticker and look at the chart, it’s an attractive setup and we’d know pretty quickly if the setup is going to fail or succeed based on whether support holds.
Essentially the same setup in AMD: Q4 highs + 10-ema (active support) + 200-sma.
The setup could fail, but the probability is in our favor if the stock retests the $79 to $81 area.
(I will send an update if ARKK or AMD triggers)
Dollar — DXY
(Not a trade) — Dollar strength is a negative for equities, but the DXY is running into active resistance via the 10-week moving average.
If it folds here, it could give equities a bit of a boost.
If it pushes through the 10-week, it’s got room up to the $105 area and the 50-week.
Numbered are the trades that are open.
Bold are the trades with recent updates.
Italics show means the trade is closed.
(Any positions that get down to ¼ or less (AKA runners) are removed from the list below and left up to you to manage. My only suggestion would be B/E or better stops.)
From this latest round, that includes TLT, DE, FSLR and NKE.
None at this time!
*Feel free to build your own trades off these relative strength leaders*
Relative strength leaders →
NVDA, TSLA, SHOP — Look for setups to active support via the 10-day ema!!
Disclaimer: Charts and analysis are for discussion and education purposes only. I am not a financial advisor, do not give financial advice and am not recommending the buying or selling of any security.
Remember: Not all setups will trigger. Not all setups will be profitable. Not all setups should be taken. These are simply the setups that I have put together for years on my own and what I watch as part of my own “game plan” coming into each day. Good luck!